Cherney v Neuman
| Jurisdiction | England & Wales |
| Judgment Date | 22 July 2009 |
| Neutral Citation | [2009] EWHC 1743 (Ch) |
| Docket Number | Case No: HC08C02338 |
| Court | Chancery Division |
| Date | 22 July 2009 |
[2009] EWHC 1743 (Ch)
Before: His Honour Judge Waksman QC sitting as a Judge of the High Court
Case No: HC08C02338
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Philip Jones QC and Hugh Norbury (instructed by Fladgate LLP) for the Claimants
Thomas Beazley QC (instructed by Denton Wilde Sapte) for the 1 st, 4 th and 5 th Defendants
Jamie Smith (instructed by Berrymans Lace Mawer) for the 2 nd and 3 rd Defendants
Hearing dates: 3 and 4 July 2009
Approved Judgment
Introduction
The Parties
The First Claimant in this case (“Mr Cherney”) is a Russian businessman living in Israel. He has had a number of business interests in England and Spain among other places. The Second to Fifth Claimants are all offshore companies under Mr Cherney's ultimate ownership and/or control. Mr Cherney does not speak English or at any rate not very well. In the business dealings here, the contact point for Mr Cherney was often a Mr Todor Batkov, a Bulgarian lawyer.
The First Defendant (“Mr Neuman”) is a retired businessman. He was born in Romania but subsequently moved to the USA in 1967 and he is a US national. He built up a substantial furniture business in Spain and later extended his operations to the USA, Italy and Eastern Europe.
Mr Neuman met Mr Cherney in 2001. From about 2002 to the end of 2007, Mr Neuman acted for him in various ways with regard to his personal and business affairs. On any view their ongoing business relationship had ceased by the beginning of 2008. Mr Neuman maintains that he had wanted to cease acting for Mr Cherney the previous year but Mr Cherney proved difficult about letting him go. According to Mr Neuman, he was also owed substantial amounts of money by Mr Cherney for work done on his behalf.
The Fourth and Fifth Defendants are English companies owned and/or controlled by Mr Neuman. The Second and Third Defendants are firms of solicitors who acted in relation to the dealings in which Mr Cherney and Mr Neuman were involved. For present purposes the Third Defendant may be regarded as the successor firm to the Second Defendant as from 1 December 2007. I shall refer to these Defendants collectively as “Pettman Smith”. The individual solicitor who dealt with Mr Cherney and Mr Neuman was Ms Marie-Garrard Newton, a solicitor employed by both firms.
The Present Applications
On 15 August 2008, the Claimants commenced these proceedings. On 24 April 2009, some 8 months later, they made applications on notice for world-wide freezing (ie Mareva) and proprietary injunctions against Mr Neuman, together with related disclosure orders. These are the applications presently before me.
There are also applications to amend the Particulars of Claim, add a new Defendant, a Mr Singh, and consolidate or otherwise jointly manage this action with another action commenced by Mr Neuman here on 21 May 2008, making various claims against Pettman Smith. Mr Singh has not responded to the application to join him and the other parties do not object. Nor is there any objection to some form of consolidation or to the proposed amendments. Suitable directions will therefore be made or agreed following my determination of the applications in issue.
On these applications I have heard Mr Jones QC for the Claimants and Mr Beazley QC for Mr Neuman. I am indebted to them both for their helpful and thorough oral and written submissions. Mr Smith of Counsel also appeared, on behalf of Pettman Smith. He made no submissions on the substantive issues but was able to provide some important information in the course of the hearing.
The Claims made against Mr Neuman by Mr Cherney
There are three relevant claims for present purposes which are summarised below.
The Thornley Claim
It is common ground that in 2006 a BVI company called Thornley Estates Ltd (“Thornley”) purchased another company called 11–15 Arlington Street Limited (“ASL”). ASL had an option to take a 150 year lease from London Underground Limited of property at 11–15 Arlington Street (“Arlington Street”) in Central London. The beneficial owner of Thornley was Mr Neuman. Once Thornley acquired ASL it exercised the option. The total cost of acquiring ASL and exercising the option was about £10.5m. The funding for this was supplied in part by a loan from Barclays Bank secured on property whose ultimate owner was Mr Cherney and otherwise from funds supplied by him or one of the other Claimants, save for £400,000 said to come from Mr Singh. Mr Cherney's case is that he agreed with Mr Neuman that he, Mr Cherney, or the Third Claimant (“Vida”) should become the beneficial owner of Thornley or the property and on its resale he would pay a commission to Mr Neuman.
Mr Cherney was informed in late 2007 that a sale of Arlington Street had been agreed at around £18m. Pettman Smith had acted on the purchase by Thornley and acted on the subsequent sale. They were told that the eventual sale price was only £13.3m, the sum provided for in the contract of sale and they received that amount into their client account. In January 2008 Mr Neuman informed Mr Cherney that a further sum of £4m in some way associated with the sale or at least with the purchaser had been paid direct to him in Spain.
Later in 2008, Mr Neuman asserted formally that in fact he was the beneficial owner of the property and, after its sale, the proceeds of sale. He made that assertion in his claim against Pettman Smith, made on 21 May 2008, and sought to ensure that they did not part with the remaining sale proceeds in their client account. As Mr Cherney was asserting that he was the beneficial owner and thus entitled to those sale proceeds, and because Pettman Smith featured in both sets of proceedings in relation to the same issues, they interpleaded. These two sets of English proceedings are the subject matter of the proposed consolidation/joint management direction.
Mr Cherney alleges in the present action that subject to any right to commission on the part of Mr Neuman (which was no more than a personal claim against Mr Cherney) Mr Cherney is the beneficial owner of all the proceeds of sale including the £4m paid direct to Mr Neuman. In fact, Mr Cherney contends that on the arithmetic of the sale figures, Mr Neuman must have received more, probably £4.5m. Furthermore, the buyer agreed to make a reclaim for VAT of £1.16m previously paid by ASL and pass it over to Mr Neuman.
Mr Cherney therefore contends that Mr Neuman received these sums (including any VAT reclaim monies passed to him) as trustee for Mr Cherney and a proprietary claim is made in respect of them.
Mr Neuman effectively admits receipt of £4m, does not admit receipt of any further sums and denies the proprietary claims, alleging that all the proceeds belonged to him subject to a percentage of the profit to be paid to Mr Cherney. I have said that Mr Neuman effectively admits receipt of the £4m because he wrote and said that he had received such a sum in the letter referred to in paragraph 49 below and intimated receipt of a somewhat larger sum to Mr Batkov the previous day – see paragraph 53 below. Neither in his evidence nor in the course of the hearing was it suggested that Mr Neuman had not written that letter or that he had not received that sum. In fact no challenge was made in the evidence from Mr Neuman's side, to the allegations contained in paragraphs 11.4, 11.6 and 108.1 of Mr Buckley's first Affidavit in this regard. And in the context of risk of dissipation, Mr Beazley submitted that Mr Neuman had drawn attention to the receipt of the £4m (see further paragraph 80 below). Accordingly, for the purposes of the hearing before me and this judgment, I proceed on the basis that it is common ground that Mr Neuman received at least the sum of £4m.
This is the principal claim for present purposes and I refer to it as “the Thornley Claim”.
The Draycott Claim
It is common ground that in 2005, the Claimants remitted about £7m to Pettman Smith to be held for the purpose of refurbishing two apartments in a development known as “The Knightsbridge” and a long stay hotel called Draycott House, such properties being located, again, in Central London. The corporate vehicles to be used for these works were the Fourth and Fifth Defendants (“EWBC” and “DPM” respectively).
There are in fact two claims here:
(1) First, the Claimants allege that in April 2005 Mr Neuman procured the payment to himself of £7m from the Pettman Smith client account but he later returned only £6m. So there was a £1m shortfall;
(2) Second, payments totalling over £3m were made from the Pettman Smith client account to the Fourth and Fifth Defendants, ostensibly for the purpose of the intended refurbishments. Mr Cherney's case here is that either none or only a small part of those monies were used for the refurbishments in respect of which little progress has been made.
Accordingly a claim is made for the return of a total sum of £4m. As these were earmarked funds and as Mr Neuman was acting as Mr Cherney's fiduciary, once more he held those funds on trust for Mr Cherney and a proprietary claim is made here, too.
Mr Neuman asserts in broad terms that all the funds remitted were used for the refurbishments which to date have been very extensive indeed. He accepts in principle that he should provide an account of what exactly the monies have been used for.
This is the second claim to which I shall refer as “the Draycott Claim”.
The Park Mansions Claim
In April 2005 Mr Cherney purchased,...
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